If I Stop Paying My Student Loans, Will the Default Yield a Reasonable Settlement?

I would like to know what will happen if I stop paying my student
loans. I have never been unemployed and don’t plan to be, but my loan
payments are over $700 a month and that is unreasonable (that’s over
half of my monthly salary). I have tried three different jobs since
graduating in the hopes of making more money, but in this economy
nothing is working. I cannot save any of the money I make, so I cannot
buy a house, or car, or return to graduate school. If I were to have
some kind of emergency, I would go bankrupt. Despite having made every
payment on time for my loans, phone bill, other bills, rent, etc., I
can’t even take out a line of credit to buy a sofa. I do not have a
credit card or other debt. I have heard that if you stop paying your
loans, your credit gets ruined, your wages get garnished, and then
eventually the company will settle with you. I have federal loans and
a private loan, totaling $45,000. I have tried to get my monthly
payments reduced but they denied my request. What will happen if I
stop paying?
— Elle L.

Defaulting on student loans is like taking a trip through the gates of
hell, but with only limited opportunities for escaping the horrors you
will find there. The lender is never going to let go of you. That
promissory note you signed was a contract with the devil. After you
default on your student loans, you will experience true evil. This is
not the type of journey that should be undertaken if at all possible,
let alone voluntarily.

The terror begins with harassing phone calls and letters from the
lender’s minions, also known as collection agencies. Some defaulted
borrowers have reported getting several dozen calls a day from a
collection agency. Collection agencies are not supposed to threaten or
harass you, to tell your neighbors or employer about the debt or to
swear at you, but some do. Some believe that making you miserable will
force you to pay your debts. One collection agency that specializes in
student loans even has a large shark tank on display in its lobby.

You will then be forced to pay for your sins, again and again. Up to a
quarter of every payment on a federal loan (and sometimes more for
private loans) is skimmed off the top to pay for collection charges
before the rest is applied to outstanding interest. Only when the
interest is paid off will any part of the payment be applied to reduce
the principal balance. Like the travails of Sisyphus, you will be
condemned to making involuntary payments on your debt for years
without seeing any decrease in the principal balance of the loan. Collection charges
can double the amount of time it takes to pay off your debt. The
punishment feels like it is never-ending. Many defaulted borrowers
suffer from depression and feelings of self-loathing.

The federal government gets paid one way or another. They have very
strong powers to compel repayment from defaulted borrowers. The
government can garnish up to 15% of your income (after subtracting
amounts required by law to be withheld) without a court order. They
can even garnish up to 15% of Social Security benefit payments,
including both retirement benefits and disability benefits. Your
income tax refunds will be intercepted to repay your loans, as will
any lottery winnings. They can sue you to recover the debt. There are
many other terrors they can inflict on you to force you to pay.

Private lenders may not have as strong powers to compel repayment, but
they can still take you to court to collect on the debt. If they get a
judgment against you, they will be able to invoke a wage garnishment
order and to seize assets such as bank accounts. They can also seek
repayment from the cosigner, if any.

A student loan default on your credit record will prevent you from
getting a credit card, auto loan or mortgage. You won’t be able to
enlist in the Armed Forces or get a security clearance. You will find
it more difficult to rent an apartment, since some landlords will
check your credit history. You may even find it more difficult to get
a job, since some employers will review your credit history. You may
lose your job.

You will never be able to get away from the debt. It is almost
impossible to discharge student loans in bankruptcy. To even try, one
has to file an undue hardship petition in an adversarial proceeding, a
very harsh standard. If you have a sound mind in a sound body, you are
extremely unlikely to get your student loans discharged. Of 72,000
federal student loan borrowers in bankruptcy in 2008, only 29
succeeded in getting all or part of their student loans
discharged according to ECMC. That’s 0.04%. You’re more likely to die of cancer or die
in a car crash than to succeed in getting your student loans
discharged.